Kering SA, the French owner of the Gucci luxury brand, owes about 1.4 billion euros ($1.6 billion) to Italy in back taxes, according to the conclusions of a government audit.
The probe scrutinized business activities by Kering’s Swiss subsidiary, Luxury Goods International, from 2011 through 2017, according to a company statement. Kering said it contests the findings of the Italian audit.
Italian authorities opened a probe into the Gucci owner’s taxes in 2017, focusing on a Swiss subsidiary of the Paris-based company. That followed reports by French news site Mediapart that Kering had engaged in a false billing scheme, declaring Italian profits in Switzerland to take advantage of lower tax rates and fictitiously transferring some 20 employees to Switzerland even though they continued working in Italy. Citi analysts had estimated that Kering could face a settlement of 1.3 billion to 2 billion euros from the probe.
While the initial liability is in the expected range and “should not shock,” the company might face additional fines, John Guy, an analyst with Mainfirst Bank, said in a note. The company “has been provisioning ahead for the liability and will be able to offset part of the claim, hence we expect a lower net number.”
The auditor’s report will be reviewed by Italy’s revenue agency, which will then make a final conclusion, according to the statement. Kering said it doesn’t have the necessary information to make a specific accounting provision for the tax exposure, and has implemented strict monitoring of its tax risks.
Mediapart had reported that the company had billed for business carried out in other countries at a Swiss logistics center, where it paid lower tax rates than it would have in Italy.
This article was provided by Bloomberg News.